Japanese electronics industry debates future amid turmoil

Japanese engineers from competing electronics companies gather in one room to exchange punches, parries, and predictions for Japan's electronics industry.

Takashi Yunogami, a director of the Fine Processing Institute who was also invited to the Forum as a speaker, said that the culprit is clear. “The pursuit of excessive quality with excessive technology killed Japan.” Yunogami’s pet peeve is that Japan’s DRAM manufacturers who miraculously met mainframe computer companies’ stringent request to deliver DRAM with a 25-year guarantee remained oblivious to profound changes happening in the market place -- a shift to PCs from mainframe computers -- and kept supplying the same 25-year guaranteed DRAMs to PC companies. In contrast, Samsung came up with a lower-cost DRAM with a three-year guarantee “good enough” for PCs. That allowed the Korean giant to eat Japan’s lunch, Yunogami explained.

An executive from MegaChips, a fabless company based in Osaka, said that the Japanese semiconductor industry has been ailing because they have been too focused on chips they design and chips they make. Their failure to look beyond semiconductors is the biggest problem. The survival of the Japanese electronics industry is dependent on whether “we can offer vertically integrated services, which includes everything from algorithms, LSIs and applications,” he noted.

MegaChips has vowed to subscribe to MediaTek’s playbook -- keeping an eye on a fast-changing market with a relentless focus on the development of turnkey solutions. However, he added, “Our customers won’t be typical CE companies. Rather, we hope to go after companies who build housing and facilities/equipment inside the home, for example.” MegaChips hopes to work with customers who neither know anything about semiconductors nor understand the business-changing potential of chips. “Our plan is to offer them integrated turnkey solutions -- everything from chips to apps -- that they can embrace and run with.”

Forum members also discussed pros and cons of the rampant merger trend among Japan’s electronics companies -- often engineered by bureaucrats at Japan’s Ministry of Economy, Trade and Industry (METI) -- as Japan’s industry policy.

Speaking of a new SoC company as a result of the merger of Fujitsu’s Semiconductor group and Panasonic’s SoC team, a Renesas engineer said that he sees neither synergy between the two nor the prospect of the merged company to grow. “There is no imperative to put the two together,” he said.

Many participants at the Forum predicted that the new Fujitsu/Panasonic SoC comapny won’t succeed, speculating that the only purpose of the JV is for Fujitsu to get funding from the state-backed Development Bank of Japan.

None of Japan’s merged ventures -- starting from Elpida to Renesas Technology and Renesas Electronics -- have been successful, partly due to the human factor, said Yunogami. No Japanese engineer is eager to work at a JV, he said.

Yunogami cited his own experience at Elpida, where he later discovered he was the only engineer who volunteered to move to Elpida. Everyone else had begged to stay at his respective parent company. Being transferred to a JV is a traumatic experience for Japanese employees because it amounts to a loss of personal identity, which is closely linked to the original company for which they vowed to work lifetime.

Japanese engineers, however, will soon find out that they have no choice but to shed this mindset and embrace a new -- adapt or be unemployed -- reality.

The Renesas engineer at the Forum noted, for example that he’s thinking about negotiating a spin-off business based on the IPs he and his team worked on at Renesas.

VeriSilicon CEO Dai asked him, “Are you willing to become a CEO and run that startup?” Well shy of uttering a resounding affirmation of his incipient entrepreneurism, the Japanese engineer said, “Well, I’ve started thinking about that.”

While heated debates enthused on various topics during the Forum and even after that, the following are five-point “predictions” the Japanese Semiconductor Executive Forum made before the meeting adjourned.

Maybe you don`t understand the very big picture here. Yes the companies you have listed is well known but I want more significant or heavily involve companies especially in making important contribution. you listed companies like Siemens, Infinion, Zeiss, BASF is like American listed Dow Chemicals, Dupont, HP, TI etc or Japan listed Sony, Fujitsu, Advantest, Toray etc, or Korean with their infamous Samsung, Samsung SDI, LG etc, this all big companies or may I said typical mention companies. This not what I looking for. And I dare to said this German companies not on par on significant with the likes of Japan or USA. Look at Infinion selling their RF business to Intel, why. The demise of Qimonda, Wheres is German semiconductor business is heading, is German semiconductor business is in better shape than Japanese wheres news always follow the fate of its semi industry. How much contribution of German tech companies in the world semi arena. Same as materials is Japanese companies supply the most to semi business not Germany although they have Aixtron. Germany is now where to be mention much everyday is semi industry than Korea, Japan, USA or Taiwan. But in automotive we will heard everyday about their achievement, new products roll out etc. Even German solar manufacturing industry is in weak shape this day and not much talking occur about it. I can move on and on, but this enough. Thanks.

I also wonder about Germany although they are known as high tech manufacturing country but I think they are not so high tech on par with USA or Japan. Yes Germany are well known with their sophisticated looking cars but how advanced or significant are they in field of semiconductors, electronics, aerospace, or advanced materials to compare with USA or Japan because I cannot find any large involvement of this country (one example in civil aerospace, there are more Japanese involvement in latest aircraft than German can I find ) same as semi, materials etc. Their large exports not equal to its involvement .

I wonder if there are similar developments in other countries? How about Germany? I don't see a future for semiconductor manufacturing there anymore. Do they face similar issues than the engineers in Japan?

Biggest problem for Japan is: It is an Island! Not because of geographics but because of thinking - which may be a result of it. Attempts to make business in the rest of the world often fail, because communication is so difficult and, japanese tend to think that the japanese way must work everywhere. Unfortunately it ONLY works in Japan. Local developed items like a Toyota car or a WII can be selled over the world but development with a customer abroad requires global thinking and understanding which is not in Japans focus.

Most conceivable customers want turnkey solutions from suppliers. Why not? Just pay the materials but not the home-grown R&D fixed cost, and get the solutions (SW, HW, system, or whatever necessary).
The missing part, and this is critical, is: global thinking!
If the end-customer is selling globally, then the solutions must have the global needs (EMEA, Asia, Japan, USA) in mind. Because each specific geography has its own need, local customization is needed. Collapse of the Japanese semiconductor (actually, mainly digital & mixed-signal SOCs right now) industry is partly because of the failure of their OEM customers like Sony / Panasonic / NEC / Sharp / Sanyo / ... They also fared badly in the last 10 years.
If the Japanese semiconductor companies designed their products with the global needs in mind, had the right process to incorporate the market information from the qualified individuals (should be mostly local people, not expatriates) in all the geographies, and the right development engineering process which closely monitor schedule / resources / cost / requirements etc, they could quickly sell variants of products designed for the failed Sony FPTV to LG or TPV or TCL!
In my life, I saw multiple (i.e. not one) instances of bloated resources, excessive schedule delay, incompetent lead engineering, incompetent workwide marketing & sales because the unqualified and incompetent senior people at the Japan headquarters want to control everything! In my 16 years of dealing with one of the big Japan semiconductor companies, such kind of stupidity kept repeating itself.
From the report by Junko, these senior people still don't know why Japan semiconductor industry failed!

Bert, I believe that a big problem in US is the ridiculous compensation given to the top few people (mainly the CEO) in a company. Further, the finance people can so manipulated the economy (collapse in CY2009), ripped most of the rewards, mostly unpunished, yet the middle-class collapsed.
I recall the 10 years I was in England (1979-1989), not many young people want the career of EE because the jobs were typically not well rewarded and engineers had a low corporate status compared to those in management/accounting/business/law etc. Looking at how powerful banks and their allies in Washington are, what is the future for engineers? My crystal ball is muddy!

If you look deeply into what'd happened, "over-work" could be superficial and skin-deep. Many "over-work" results from "over-drink" to build up social relationship. And, in the past, over-work lead to 1.5x/2x of normal pay for those ranked below assistant manager. Given the high cost of living in Japan, many engineers especially the junior simply need to over-work. So, when the junior engineers worked over office hours, their managers have to stay behind, hence a crowd effect.
At the end of the day, if over-work and super-efficiency can be achieved, Japanese semiconductor engineers will be super-productive. Are they? We should all have the answers without asking!

I havent seen a single mention of the effect of culture, of the samurai, of Japanese xenophobia, of a single ethnicity unaffected by diversity. Can you imagine where the US would be today without immigrant engineers and scientists? After Sputnik catalyzed the huge 1960s production of homegrown engineers, leading to the success of our space program, homegrown production of engineers dried up. For a more than a generation, the best and brightest went into finance and Wall Street. Fundamental research at companies like ATT and IBM has virtually dried up. The flow of the best and brightest immigrant engineers has dried up, thanks to 9/11 paranoia, and host companies waking up, and stopping the brain drain. Meanwhile, Japan never had any influx of immigrant brainpower, merely an aging population immersed in the samurai culture of obedience and anti-individualism. And a P.S. to Les: DEC failed because of the hubris brought by momentary success, and Ken Olsen's ignorance of marketing.